The Influencing Factor Of "Exchange Earnings Or Loss" And "Foreign Currency Exchange Differences"

Since the exchange rate reform in2005, the liberation ofexchange rate and interest rate has been moving forward more rapidly,meanwhile, after joining the WTO, the numbers of multinationalcompanies have become larger.The change of exchange rate may have an influence on thecompetitiveness, profitability and enterprise value of the multinationalcompanies. The influence may mainly be reflected on the accountingsubject of “exchange gain or loss” and “foreign currency translationdifferences”.In this paper, we took a deep research of the factors that may havean influence on the “exchange gain or loss” and “foreign currencytranslation differences” of multinational companies. We choose thepublic multinational companies in China A shares as my samples. Theobserved variables are exchange rate, hedge methods and the nature ofthe companies and so on. We controlled the variables such as scales,macroeconomic conditions and corporation financial conditions, andfound that by using financial hedge methods such as derivatives, multinational companies can have a better control of the risk andvolatility of their exchange gain and loss, also the companies whichhave an import business can better control their operational risk ofexchange rate. Besides, the exchange gain or loss and foreign currencyexchange differences are related to the factor such as whether thecompany is state-owned or not. At last we are surprised to find thatexchange rate doesn’t have so much influence on exchange gain orloss and foreign currency exchange differences of multinationalcompanies.The innovation of this paper is that we took a research of theexchange rate risk of multinational companies in the view ofaccounting. According to the results of our research, we suggested thatmultinational companies can enhance their use of foreign exchangederivatives to hedge the risk of exchange and meanwhile thegovernment can establish policies to promote the development offoreign exchange derivatives. Besides, since capital concentrated andtechnology concentrated companies can have a better control of theirforeign exchange rate risk, it is meaningful to promote the industrytransfer on the aspect of foreign exchange rate risk management.